Will Brexit Mean History For The Housing Market?

It is often said that history repeats itself and where the housing market is concerned there is certainly truth in that statement, particularly when you look at the market in relation to major political events. For 2020, the question is will Brexit repeat or rewrite history for the property market?

We have already seen a
swift uplift in growth and
activity
in reaction to a resounding election win by Boris Johnson and the Conservative
Party in December last year. It was perhaps the promise to ‘get Brexit done’
that helped restore some certainty across the UK and subsequently enough
confidence to give the market a boost. But what happens next, and is this ‘Boris
bounce’ long- or short-lived?

If the answer lies in the cyclical patterns of history, there is little quite on this scale – politically and economically – to compare Brexit to. So then maybe it’s best to go back to where it all began, at the point of Britain joining the EU.

Interestingly, according
to leading UK developer SevenCapital, who has crunched the
numbers, by doing this we already see a very clear trend in the way events
unfold and the impacts on house prices.

House price data (fig 1)
shows that on the lead up to Britain joining the EEC (now the EU) on January
11973, house price growth, in anticipation, was strong – reaching
more than 50% in the 12 months between the Treaty of Accession being signed in
January 1972 and the day the UK officially became part of the EEC.

However, in the following
couple of years, with a new Labour government coming into power and campaigning
to renegotiate the terms of the UK’s EEC membership, house price growth,
potentially driven by uncertainty, dropped to a low of 3% from January 1974 to
1975.

It was only when a
referendum, in June 1975, on whether the UK should remain in the EEC had taken
place, which saw 67.3% of voters voting in favour of maintaining membership,
that house prices began to pick back up again: between the referendum and
January 1976 house prices increased 6.3%, followed by 7.5% YOY January 1977 and
10.2% YOY January 1978. (fig 2).

So how does this correlate
to Brexit now?

Firstly, where we saw
significant house price growth on the lead up to the UK joining the EU
(EEC), we also saw very healthy house price growth in the two years before the
referendum to leave the EU in 2016 – the highest since 2010 (fig
3).

Then, over the next two
years, uncertainty ruled with opposing political parties and MEPs campaigning
against the government to revoke Article 50, house price growth dropped to a low
of 1.7% in the year to January 2019 – the lowest since circa 2012.

In a similar move to the
referendum in 1975 when certainty was restored by the public voting almost
unanimously in favour of remaining in the EU (EC), we have only recently begun
to see more positive movement – the ‘Boris bounce’ – in the housing market
following a clear win by Boris Johnson leading the Conservatives, with the
promise to “Get Brexit Done”.

Rightmove recently
reported that in the month following the election – between December 13 and
January 15 – average property prices jumped 2.3% in the biggest rise for the
period since the website launched its house price index in 2002.

What happens next of
course will depend on how the negotiations for the future relations between
Britain and the EU pan out. If the right trade deal can be agreed by November
26, then the UK’s future relationship can begin in earnest on January
1st 2021. In this scenario then we can perhaps expect house prices to
return to a good growth level over the next 12 months.

However, with a summit set
to be held in June to assess the progress of talks, at which point the UK can
request to extend the transition period up to two years – to December 2022. As a
worst-case scenario, this could mean the housing market remains at a steady
growth level for a longer period of time until there is assurance of what the
future looks like. Whichever scenario, it seems apparent that growth is set to
return.

Andy Foote, director at
SevenCapital, comments: “We’ve seen the
beginnings of what is being dubbed a ‘Boris bounce’ in the housing market, and
experts, SevenCapital included, have predicted a post-Brexit housing boom.
Short-term, I expect this is likely to happen after January 31st.
However, what happens next all falls on the speed and success of negotiations
over the next five months.

“What is apparent and is
important to take note of, particularly for property investors and buyers
wondering whether to buy now or wait, is that whilst we’re in this period of
uncertainty, house prices are still growing – however slow they might seem. This
is the market simply saying it wants to move, but “let’s just hang fire for a
moment whilst we find out what is happening”; It’s potentially an opportunity
for the less risk averse to invest, or buy before the bounce and wait for the
market to return to higher growth again.”